C34—Lancaster Fanning, Saturday, November 29,1980
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Dy
Glenn A. Shirk
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How Is Your Survivability’
Rising costs never are a
pleasant thing to face,
especially if income is not
keeping pace. For dairymen
who are heavily indebted or
for those who have low levels
of production, these rising
costs can be devastating.
Now is a good time to be
brave enough to check your
survival ability. Knowledge
of this may help you plan
your future more wisely.
One way to do this is to look
at your DHIA summary.
What are your feed costs’
What are your returns over
feed costs’
These figures can be good
indicators of what your
situation might be at some
point in the future. It is more
helpful and sometimes
more uncomfortable to
look ahead and anticipate
your future than it is to wait
several months until after
your tax returns are
prepared only to see what
has happened months ago.
The past can’t be changed,
but the future can.
Feed costs represent your
major expense of producing
milk. The feed costs
reported in your DHIA
sheets represent the cost of
feeds purchased plus all
those costs associated with
growing, harvesting and
storing your home-grown
feeds. For many dairy
farmers, these costs have
been totaling about two
thirds of their total farm
costs. Your experiences may
be different.
As you can appreciate
Extension
Dairy
Agent
these figures, and the figures
which follow, vary greatly
from farm to farm. So, for
this to be most beneficial to
you, use your own figures.
The only purpose for the
figures I have used is to
illustrate how you might be
able to use some of your
DHIA data to help you make
some farm management
decisions.
Here’s something tor you
to try with your own figures
after you take your
“brave” piUs Multiply your
feed costs per cow by 1.2 to
compensate for a 20 percent
increase in feed costs.
Remember, these feed costs
are only for the milking
herd. Chances are, you also
have to feed some heifers,
and they may consume one
fourth as much feed as the
milking herd So, multiply
these new, inflated feed
costs by 1.25 to get an
estimate of your total feed
costs for the cows plus the
heifers.
I mentioned earlier that
feed costs represent about
two-thirds of your total
costs; all other costs
represent the remaining one
third In otherwords, all the
other costs are equal to
about one-half of your total
feed costs (one-third is half
of two-thirds).
So, to get an estimate of
your total costs, multiply
total feed costs by 1.5.
Now comes the scary part.
Calcuate your income from
milk and cattle sales. On
many farms, income from
sale of cattle amounted to 13
percent ot the milk check
From your income ngure,
subtract your total expenses.
The difference represents
your margin of profit; this is
what’s left for the family, for
savings, or for plowing back
mto your business.
Now, put yourself to the
test to see what kind of
economic fluctuations you
can tolerate. Increase your
total expenses by 10 percent
(inflation) or reduce your
income by 10 percent (herd
health or fat test problems).
After taking out what you
need for living, is your profit
margin large enough to
absorb these changes? If
not, don’t jump into a costly
panic move. The temptation
might be to take out a loan
for expanding the herd in an
attempt to improve cash
flow. It will probably be
more profitable, and more
satisfying, to concentrate on
improving herd production
and margin of profit per cow
first; getting bigger can
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margin of profit per cow to
survive these inflationary
times.
The last thing you may
need is additional debt load,
unless it is for the purpose of
improving herd per
formance.
To illustrate this concept,
increase milk income by 10
percent (representing a 10
percent increase in
production) and increase
feed expense by seven
percent (as production in
creases, it takes more feed)
and increase other expenses
by 10 percent. Look at what
this does to your profit
margin your survival
ability.
Now let’s see what could
happen when you take out a
30-year mortgage to expand
at a cost of $2OOO per cow.
The annual cost of this loan
will be about $3OO per cow
added. If you take out a short
term loan for purchasing the
(Turn to Page C 35)
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